I follow quite a lot of companies, so the usefulness of a watchlist to me cannot be overstated. Without my watchlist, I'd be unable to keep up on my favorite sectors and see what's really moving the market. Even worse, I'd be lost when the time came to choose which stock I'm buying or shorting next.
Today is Watchlist Wednesday, so I'm discussing three companies that have crossed my radar in the past week -- and at what point I may consider taking action on these calls with my own money. Keep in mind that these aren't concrete buy or sell recommendations, nor do I guarantee I'll take action on the companies being discussed. What I can promise is that you can follow my real-life transactions through my profile and that I, like everyone else here at The Motley Fool, will continue to hold the integrity of our disclosure policy in the highest regard.
Elan (UNKNOWN: ELN.DL )
Having a lot of cash in the biotech sector doesn't mean that a company's clinical trials will translate into success. Elan's claim to fame was the development of multiple sclerosis drug Tysabri, which it licensed out to Biogen Idec (NASDAQ: BIIB ) . Sales of the drug hit $1.6 billion last year.
However, earlier this year, Biogen purchased the remaining rights to Tysabri (they had been split 50-50) for $3.25 billion in cash, further cementing Biogen as the name to be reckoned with in MS therapies. The purchase doesn't negate the fact that Elan can still earn 12% to 18% royalties from Tysabri depending on its annual sales, but it leaves Elan's product pipeline completely empty.
The concern I have with Elan is twofold. First, the company used $1 billion of its $3.25 billion to buy back its own shares. That's fine if the company is healthfully profitable and looking to boost shareholder value, but to me it seems a waste of $1 billion to repurchase shares when it has no FDA-approved products on the market (again, not counting its Tysabri royalties).
Second, it has one (yes, one) experimental compound currently under investigation. That drug, ELND005, is being targeted at Alzheimer's disease and bipolar disorder. May I remind everyone that bapineuzumab, which was being developed by Pfizer and Johnson & Johnson, and which Elan had a financial interest in, failed in multiple late-stage studies. So Elan essentially has only one drug in development to treat a disease area that few have had any success in. While I wish Elan luck, I'd be looking for a short-selling opportunity on any major rally.
Juniper Networks (NYSE: JNPR )
Juniper Networks is always a company I have on my Watchlist, as it's a particularly predictable networking play. Just like any tech company, it suffers from the ebb and flow of the replacement cycle as new technologies and software emerge. It also has suffered under the weight of weaker government spending, which has reduced the networking infrastructure needs of some of its primary customers.
However, just as Juniper has struggled over the past year, the signs that its business may be about to turn are making themselves apparent. Specifically, I'm talking about the boost we're beginning to see in the bottom lines of fiber-optic companies. Fiber-optic component suppliers like JDS Uniphase (NASDAQ: JDSU ) are seeing a ramp up in orders from Chinese and domestic service providers, which usually signals that the next technological infrastructure build-out is upon us. We've been given confirmation of this strength in JDS' second-quarter results, which delivered a 5% revenue jump, at the high-end of the company's previous forecast, as all three business segments improved.
Simply put, when fiber-optic companies begin seeing orders, that's when Juniper becomes a strong buy. As a provider of networking infrastructure, it's the next logical step up the ladder. In addition, with nearly $1.7 billion in net cash, Juniper is incredibly well funded, yet is small enough with a market value of just over $8 billion to be a takeover target if it drops much further.
Millennial Media (NYSE: MM )
To say that my timing in selecting Millennial Media as a "stock near a 52-week low that you can buy right now" stunk would be an understatement. Shortly after my selection, the provider of mobile advertising sank like a rock -- a continuation move from fourth-quarter results in February that weren't well received by investors. But sometimes you have to be able to see the good in the bad, and there's a lot of potential growth in mobile advertising.
I believe the biggest problem with mobile advertising, just as we saw last year with nearly all forms of social media, is that there's no set formula for success. If investors don't understand it, and there isn't a set formula for success like Google has with online-based advertising, then investors and analysts are less likely to understand its potential. Yes, that does mean even I could be misconstruing Millennial Media's potential, but I feel fairly confident that without a true leader in mobile advertising, it can garner significant market share.
Millennial Media is working with $1.73 in cash per share and no debt, so, if anything, it's an attractive takeover candidate for a larger company. As long as Millennial remains profitable and cash flow positive, I think you go along with the growing hiccups and consider it an intriguing long-term buy.
Is my bullishness or bearishness misplaced? Share your thoughts in the comments section below, and consider following my cue by using these links to add these companies to your free, personalized Watchlist to keep up on the latest news with each company:
- Add Elan to My Watchlist.
- Add Juniper Networks to My Watchlist.
- Add Millennial Media to My Watchlist.
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